Greek Banks in the Balkans: the big crunch

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Ms. Athanasia Dimitriadou, M.B.A. Student – Specialization in Finance

Dr. Periklis Gogas, Associate Professor

Department of Economics

 

Democritus University of Thrace

Mergers and acquisitions are often used as a means of bank expansion both nationally and even more so internationally. Greece joined the EMU in 1999 and was in the first group of EU countries that abandoned their national currencies and adopted the euro in its physical form in 2002. From that point on the Greek banking sector became an integral part of the European monetary and economic union. There were multiple benefits from this integration. On the top of the list was the stability that was guaranteed by the European Central Bank (ECB) and its supervision mechanisms. This stability and the related risk minimization was reflected in the low financing costs of the European banks in general and Greek banks specifically. This fact significantly widened the spread between lending and deposit rates for Greek financial institutions so that profit margins increased. These margins were sufficiently large that Greek banks did not need to invest (at least not greatly) in financial instruments such as Asset Backed Securities (ABS) or other derivative financial instruments that appeared to have high yields. After the crash in the markets were these assets were traded they became widely known as “toxic bonds”.

Greek banks did not have a high exposure to these bonds as they found an alternative source of high revenues: the expansion to neighboring countries in the Balkans. These emerging economies started their financial liberalization process and opened their financial sector to international investors. In Table 1 below we report the most important investments of Greek banks in the Balkans before the Greek Debt Crisis. The five major Greek banks were very active in investing in the Balkans. These were more specifically: the National Bank of Greece, Eurobank, Piraeus Bank, ATE Bank and Alpha Bank. In the first column of Table 1, we present the Greek bank that invested in the Balkans, in the second column we report the acquired foreign bank, in the third column we report the country of the acquired bank and in the final column the percentage stake of participation. In all, fifteen banks were acquired in total or in a major stake by the five systemic Greek banks.

Table 1. Greek Banks expansion in the Balkans prior to the Greek Debt Crisis

In 2002, Eurobank acquired a 43% stake in Post Bank Bulgaria and in 2004 increased this percentage to 96.74%. In 2006, Piraeus Bank acquired Finansbank in Turkey increasing its assets to €70 billion, with 1,059 branches (45% outside Greece) and profits before tax reaching €1.3 billion.

The global financial crisis realized in 2007-2008. For the reasons we explained earlier, Greek banks were not significantly affected by this crisis as their toxic bond holdings was low. But at the same time, despite that fact, this period (2007-2009) the country’s fiscal situation began to deteriorate, resulting in the Greek Debt Crisis that started in 2010. At that time government deficit skyrocketed to more than 15% triggering the need for financial aid. The price of Greek government bonds plunged and this impacted significantly the financial statements of the Greek banks as they invested heavily in Greek government bonds that at the time seemed minimum risk securities. As a result, the sovereign debt crisis significantly affected Greek banks that now needed to restructure their portfolio holdings and increase their liquidity to avoid a collapse. As it is common in multinational companies in such situations, they start to shed their international holdings to get cash in order to avoid a liquidity crisis that may hit the parent company and avoid a possible bankruptcy. Thus, a big crunch of the Greek banks started after the crisis. This is shown in Table 2.

Table 2. Greek Banks contraction in the Balkans after the Greek Debt Crisis

As a result of the Greek crisis and the subsequent restructuring of the Greek banking sector, in 2012, Piraeus Bank acquired the healthy assets of ATE Bank, in 2013 acquired Millennium Bank and in 2014 the Greek Bank. ATE Bank was sold in 2016 to ERGO International AG. In 2016 the National Bank of Greece sold the 99.81% of its participation in the Turkish Finansbank to Qatar National Bank. Recently, the 2017 reports indicate the sale of Bancpost, a subsidiary of Eurobank’s majority stake in Romania.

 

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